If you understand the
importance of oil to modern capitalism, you will understand a great deal
indeed. Oil prices briefly hit $57 a barrel in early April, continuing an 18
month rise. Remember that in December 2003 oil prices were around $29 a barrel and
were expected by Wall Street analysts to stay at about that price in the coming
year. Instead, prices have risen steadily while also at the same time
fluctuating considerably due to supply disruption and a fluctuating albeit high
demand. In mid-April oil prices per barrel reached an eight week low, at $50
per barrel! By the end of April, prices had returned to around $54 a barrel.
These prices are in line with U.S. Department of Energy predictions from
mid-March; they predicted that the price per barrel would stay above $50 for
the rest of the year.

Analysts at the investment firm
of Goldman Sachs warned of a possible rise—they called it a “super spike”—to $100
a barrel by year’s end. While the price spikes are important, what matters more
is the long-term trend line. The prices had been relatively stable for some
time until the end of 2003. Since then the average price trend has been
steadily upward. By my crude calculations, the trend line shows an average
increase of 37% per year. At that rate, the price per barrel doubles every two
years.

While the fluctuations around
the average trend are due to conjunctural factors, such as the war in Iraq and a lack
of refining capacity, the overall increase has other causes. The principal
cause, the one that no one in the capitalist media wants to talk about, is
Hubbert’s Peak—the coming decline in world oil production.

Hubbert’s Peak is the point at
which half of all the available oil is used up and total supply starts to
decline. (The peak is actually the peak of a bell-shaped curve representing oil
production). After that point supplies decline and prices climb. Worldwide,
Hubbert’s Peak is expected to occur between 2006 and 2015. The peak can also be
calculated for individual countries but can not be known absolutely until
several years after the peak is reached. For example, the peak for U.S. oil fields
in the lower 48 states was estimated by Hubbert (in 1949) to take place between
1966 and 1972. The actual U.S.
peak occurred in 1970, and domestic oil production has been declining steadily
ever since, in spite of advancing technologies and intense exploration.

In March of this year the oil
industry analysts John S. Herod Inc. estimated the Hubbert’s Peak for the giant
oil companies. Herod’s is widely respected by investors and is well known in
investment circles for being the first group to point out that Enron had few
assets and declining profits, and that their stock was overinflated. Enron
collapsed, much to most people’s surprise, 10 months after the Herod report on
the company.

By Herod’s calculations, all of
the large oil companies will hit their peak in the next 4 years. The French oil
giant Total S.A. is expected to peak first in 2007. Exxon Mobil, Conoco Phillips,
BP, Royal Dutch Shell, and Eni S.p.I (an Italian corporation) will all peak in
2008. Chevron Texaco, with the largest reserves, will peak in 2009.

As demand continues to climb
and the major oil corporations and the world approach Hubbert’s Peak, several
things will happen.

First, prices will climb
steadily. This will have a direct impact on all the economies of the world. In
the U.S.,
the cost of living will increase, consumer spending on homes, durable goods,
and other items will decline, and unemployment will increase. This could result
in a period of stagflation or, as some experts predict, a depression.

Second, profits will surge. While
the rising price of oil will hurt the working people of the world, it will
result in massive profits for the oil companies. The cost of production is not
changed in the short run by the declining supplies. In the medium run, new
investment in production, refining, and transportation of oil will be required
to get at the harder and harder to find remaining oil deposits.

Third, the corporations, unable
to find enough new supplies to meet demand, will use some of their profits to
buy up other corporations to increase their reserves. This is already starting,
as reported in the April 5 New York Times,
which reported: “Giant oil companies are flush with cash because of record
crude oil prices, but short of fresh opportunities to develop fields. That has led some companies, like BP in Russia, to seek growth through
acquisitions rather than through exploration” (p. C1). The Times report focused on the $16.8
billion acquisition of Unocal by ChevronTexaco. More acquisitions are on the
way as the giants acquire the smaller companies and even other oil giants. In
other instances, the oil corporations will use their superprofits to gain control
of other energy sources, such as coal or hydrogen. This is the apparent
strategy of BP, whose ads claim that BP stands for “beyond petroleum.”

Fourth, the U.S. will become even more dependent on oil
produced in OPEC countries and U.S.
capitalism will be even more likely to intervene for the sake of control of the
oil supply (and oil profits), as it did in Iraq. The next most likely target
is Venezuela, which has the
largest known reserves outside of the Middle East and a government that refuses
to be controlled by Washington.

The Bush proposal to drill in
the Arctic National Wildlife Refuge (ANWR) and the recent passage of this
proposal in the U.S. House of Representatives must be seen in the light of the
upcoming peak in production. The amount of oil in ANWR is insignificant
compared to world demand and, as even President Bush has acknowledged (see his
statement in the April 21 New York Times,
p. A17), will not lower domestic oil prices at all. (In fact, there is no
reason to believe that any of the oil will reach the lower 48 states. The most
likely destination is the booming Chinese market.) What the Bush proposal will
do is provide yet another source of superprofits for the oil companies while destroying
a fragile eco-system. In addition, just to sweeten the pot for the oil
companies, the Bush bill provides for an estimated $22 billion in tax relief
and federal aid to oil corporations over the next ten years. Apparently, it is
not enough to be given access to ANWR; the oil companies also need massive corporate
welfare besides.

The problem of global warming,
the most serious environmental problem facing our species, and the capitalist
system’s overreliance on increasingly scarce supplies of oil are linked. A
starting point for dealing with both problems is to nationalize all oil
companies in the U.S.,
under workers’ control, and use the profits from oil production to convert to
mass transit and renewable energy. In the process, we would dramatically reduce
greenhouse gas emissions by the approximately 70% reduction that is needed. Nationalization
would also permit a just transition for oil workers away from oil production to
renewable energy sources, such as wind power and solar power, as the oil industry
is systematically reduced. The current path followed by our misleaders such as
Bush will lead to super-accumulation of wealth for the capitalist politicians’
“base,” the rich and the super-rich.For
the rest of us—it will lead to environmental catastrophe and economic ruin.